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Minimum pension contribution rates on the increase

Employment Law

No doubt you will already be reasonably familiar with the Government’s automatic-enrolment scheme for workplace pensions. In simple terms, it makes it compulsory for employers to automatically enrol their eligible workers into a company pension. What’s more, both employer and employee must make regular minimum contributions to the pension pot.

Contribution rates on the increase  

It was always intended that the minimum contributions rates applicable to both employers and employees would gradually increase over time. Initially the minimum contribution rate was 2%, with at least 1% from the employer. Currently, the minimum contribution is 5%, with at least 2% from the employer. However, businesses need to be aware of and prepare themselves for the fact that with effect from 6 April 2019, the minimum contribution rate will jump to 8%, with at least 3% from the employer!  

This change means that many employees will find their pension contribution rate jumping from 3% of their pay to 5%. Whilst the prospect of us all saving more for our retirement obviously sounds like a good idea, there is the risk that the increased employee contribution rate will be off-putting for some.  

Recent figures suggest that more than 10 million people have joined workplace pension schemes as a result of the auto-enrolment regime. However, will we see more employees (particularly the lowest paid and the most vulnerable) deciding to opt out of their employers’ schemes as a result of this increased contribution rate? Time will tell.

What should you be doing now?

If you haven’t already done so, it makes sense to ensure your employees are aware of these changes. However, you need to be careful about the terms in which you write to them.  You must not do or say anything to encourage your staff to opt out of your workplace pension. This is against the law and can result in fines and even prosecution.  

If in doubt, please get in touch.

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